Limits to Tax Planning

S. 337 1. Introduction

1.1. International tax regime

The subject of international taxation is different from other areas of international law; this starts with the fact that the opinions of leading academics differ as to whether an international tax regime as such exists. Whilst some experts advocate that countries adopt domestic tax laws independently and indeed that harmonisation of tax systems will produce “winners and losers”, others believe that a coherent international tax regime exists as represented by the network of tax treaties and domestic laws. Accordingly, if the existence of an international tax regime is taken for granted, certain fundamental principles, such as the single tax principle and the benefits principle, constitute fundamental norms of international tax law.

1.2. Main concepts and definitions

In international taxation – as laid down in the OECD Model Tax Convention – the main concepts are source and residence. The principle of residence is considered to be one of the criteria of connection, or nexus, of residents to a territory of a state that will exercise taxation rights in accordance with the principle of sovereignty. Depending on the domestic tax regime in place,...